Sheila Bair Launches Ad Hominem Attack on Subprime Plan’s Critics

The quality of debate in America has become so debased that for the most part we have become desensitized to the use of ad hominem attacks.

In logic and rhetoric, an ad hominem argument, which attempts to discredit the person mounting the criticism, is considered invalid, since the substance of the charge has not been addressed. It should be seen as a sign that the person using it is on weak ground, since they’d presumably address the issue if they had a good response.

The Wall Street gives us Shiela Bair, chairman of the FDIC and proponent of “freeze all the teasers” which was the genesis of the subprime relief plan launched on Thursday. She claims that investors against the program may be short the ABX. Even though efficient markets require having parties being willing to be on both sides of the trade, Bair seems to be of the school that equates being short as voting against growth and prosperity, which is only a stone’s throw away from being a communist.

If Bair was really concerned that the price of the ABX might be leading to howls of pain, she might have at least bothered to see whether ABX traders had in fact reacted to the announcement of the New Hope Alliance plan. Wonder why the Journal reporters didn’t consider that. After all, if the ABX hasn’t traded up, short investors aren’t hurting, and a lack of appreciation would be consistent with the widespread reaction that the plan won’t have much impact. Indeed, a reader was kind enough to indicate that the market “doesn’t seem to be responding yet to the plan” and had opened quietly on Friday.

In fairness, the Journal did give a wee bit of airtime to a spokesman at the end of the piece that acknowledged that even long investors might have reason to be unhappy.

From the Wall Street Journal (boldface mine)

A top federal bank regulator said some investors who are criticizing the new rescue plan for troubled homeowners also may be placing bets in which they would benefit from a jump in foreclosures.

Sheila Bair, chairman of the Federal Deposit Insurance Corp., suggested hidden financial motives may be coloring the debate over the plan, unveiled by the mortgage industry and endorsed by President Bush this past week.

The plan would grant interest-rate freezes for certain borrowers who are unlikely to be able to afford the interest-rate increases scheduled to hit their subprime mortgages over the next two years.

“I do worry that some of the investors have taken short positions on the ABX,” an index based on subprime-mortgage-backed securities, Ms. Bair said in an interview.

Ms. Bair, who was a leading figure in developing the mortgage-rescue plan, didn’t identify specific investors who she believes are shorting the market. She said she had no evidence to back up her concern

George P. Miller, executive director of the American Securitization Forum, didn’t dispute the notion that some investors who stand to incur losses from looser mortgage terms are opposing the plan. “It’s to be expected that an investor’s view of this could reflect their position in the capital structure of the investment,” he said.

Print Friendly
Tweet about this on TwitterDigg thisShare on Reddit0Share on StumbleUpon0Share on Facebook0Share on LinkedIn0Share on Google+0Buffer this pageEmail this to someone

10 comments

  1. Anonymous

    Good on you for narrowly escaping the infectious ad hominem argument yourself which might have sassed Sheila for being such a slinger of ad hominems. Period.
    No, the other bit, showing she was a disrespecter of the argument, which was…those who oppose ‘Hope we’re Allied’ are doing it for the money they stand to lose should it succeed…which is a revelation of sorts about the motives that those Hopers have, yes? This projection “you’re doing it (criticizing the HNA) for the money” is one of those ad hominem shots that explode in the barrel, yes?

  2. Anonymous

    The American Securitization Forum wrote the rate freeze presented to the public by the President and the Treasury Secretary.
    It can be found it at americansecuritization.com

    The framework allows servicers to modify loans without borrower signatures.

    Source: American Securitization Forum, Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans, Executive Summary, December 6, 2007, page 13, third paragraph from bottom of page

    Counseling and modification expenses are to be charged to securitized trust cash flows, so service providers, like Countrywide, which has a representative on the board of the American Securitization Forum, will profit from the process.

    Source: American Securitization Forum, Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans, Executive Summary, December 6, 2007, page 7, first full paragraph

    Appraised value for modifications are based on the date of origination, even if the current value is much less.
    Source: American Securitization Forum, Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans, Executive Summary, December 6, 2007, page 2, second bullet

    According to the American Securitization Forum’s Framework for the rate freeze, borrowers will not have to document current income to be eligible for refinancing, even if they received initial loans with embellished incomes

    Source: American Securitization Forum, Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans, Executive Summary, December 6, 2007, page 3, FICO test

    Some of the firms that may profit from the rate freeze are members of the industry group that authored the plan.

  3. rsm

    Ms. Bair should be concentrating her efforts on making sure her FDIC house is in order, considering that it is being pushed to the back of the line of creditors as a result of the FHLB being taped by the likes of Countrywide, WaMu, etc., etc.

  4. Anonymous

    Maybe Sheila Bair supports the plan because she herself has a subprime mortgage that needs to be rescued! One good ad hominem attack deserves another :)

  5. Anonymous

    Now that was a funny way to start the morning! I just crawled back to my chair after RATFLMAO:

    Re: “I do worry that some of the investors have taken short positions on the ABX,” an index based on subprime-mortgage-backed securities, Ms. Bair said in an interview.

    >> That kills me! Ms. Blair understands the ABX index; Im sure she plays the market and is a pro at swapping CMOs against RMBSs…. and all the various pools of toxic mortgages packaged into derivatives which no one on wallstreet can value these days……she sounds like she just got a lecture from SIFMA!!!!!

    Re: The Securities Industry and Financial Markets Association(SIFMA) represents the industry which powers the global economy.

    Born of the merger between The Securities Industry Association and The Bond Market Association, SIFMA is the single powerful voice for strengthening markets and supporting investors — the world over.

    Our dynamic, new organization is passionately dedicated to representing more than 650 member firms of all sizes, in all financial markets in the U.S. and around the world. We are committed to enhancing the public’s trust and confidence in the markets, delivering an efficient, enhanced member network of access and forward-looking services, as well as premiere educational resources for the professionals in our industry and the investors whom they serve.

  6. Anonymous

    The subprime scapegoat is looking more and more like a non issue and more and more like politics…..but why? What is the motivation beyond the obvious bank bail out mentality here? Is America about to have a run on banks or will corporations dive in valuation without Bush & Paulson getting involved with market efficiency? Whats going on?

    The lady doth protest too much, methinks”. – (Act III, Scene II)!

    There does seem to be a liquidity problem, a foreclosure problem, a dollar valuation issue, banking problems, oil problems, inflation/stagflation concerns, but yet, we have the President saying the economy is doing a heck of a great job, and then he pops up with Paulson, as if reading a script to say the subprime thing is under control…………huh?

    The lady doth protest too much, methinks”. – (Act III, Scene II)

    My take on this is Machiavellianism versus Shakespearian, i.e, I think this drama is based on the fact that The Fed, with the full blessing of The Senate, Congress and all these fine people like Bair, Helicopter Ben, Paulson, etc…… were having trouble modifying/privatizing Social Security, so they gave America a 900 page Pension Reform Act, which now links your pension to muni junk bonds and bogus subprime collateral!

    August 2006 – Landmark pension reform legislation passed last night by Congress and expected to be signed by the President this month includes the most significant changes to the fiduciary provisions of ERISA since its enactment in 1974. The new legislation (the “Pension Reform Act”) significantly relaxes the rules governing when asset-backed securities (“ABS”), including commercial mortgage backed securities (“CMBS”) and collateralized debt obligations(“CDOs”), may be offered to investors holding certain types of retirement plan assets. Absent an exception, issuers of ABS, CMBS and CDOs that are not structured as debt must comply with ERISA, including its stringent fiduciary and prohibited transaction rules — which is not practical for most ABS, CMBS and CDO issuers. One regulatory exception (known as the “Significant Participation Exception”) relied on by many issuers of either below-investmentgrade ABS, CMBS and CDOs or ABS, CMBS or CDOs that are not characterized as debt for tax (each of which typically cannot be characterized asdebt for ERISA purposes) applies if an issuer does not have “significant participation” by “benefit plan investors”.

    http://www.mayerbrown.com/cdo/publications/article.asp?id=2901&nid=3655

    Who helped educate our simple minded government employees:

    President Bush Signs Pension Reform Act
    The Asset Managers Division is pleased to report that President George Bush signed the Pension Reform Act which modernizes the Employee Retirement Security Income Act (ERISA). Of particular note, the new pension legislation includes a prohibited transaction exemption for cross-trading between separate pension accounts held with the same money manager and boosts the level of ERISA assets that can be invested in investment vehicles such as hedge funds. Association staff, in conjunction with AMD leadership and its members, worked closely with Congress on this part of the legislation.

  7. Steve

    It is peculiar when a financial regulator–one who chaired the CFTC for 4 years, by the way–starts chattering to the press like an unsophisticated ninny. Whether this reveals something about her job qualifications, or her political beliefs (“guardian of the government cheese”), or an inability to squarely face the fury among Republican voters over her plan, or some combination, it’s pretty clear that she’s the wrong person to lead the FDIC. Bill Seidman she ain’t.

  8. Steve

    And what a surprise that Bair “didn’t identify specific investors who she believes are shorting the [ABX] market.” You know, like Goldman Sachs.

    What she should be explaining, if she can, is:
    — why her plan won’t lead to even tighter credit conditions.
    — why her plan won’t keep housing prices depressed for longer than would letting these borrowers fail today.
    — what FDIC will do going forward to prevent massive unsound lending and moral hazard.
    — why she believes that subprime borrowers with no equity won’t walk away anyway now that their positive expectations of a new hummer in 2 years have turned negative, and renting will put more cash into their pockets today.

  9. Felix

    I’m much more interested in these “some investors who are criticizing the new rescue plan”. The WSJ seems to accept that such investors exist — would it be too much to ask that they quote them, anonymously if necessary? ‘Cos in all the press surrounding this issue, I have yet to see a single investor criticizing the plan.

Comments are closed.